Sep 192014
 

http://wikileaks.org/cable/2005/12/05MANILA5922.html#
Reference ID Created Released Classification Origin
05MANILA5922
2005-12-22 03:08
2011-08-30 01:44
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Manila

This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 MANILA 005922

SIPDIS

SENSITIVE

STATE FOR EAP/MTS, EB/TPP
STATE PASS TO USTR FOR BWEISEL AND DKATZ
USDOC FOR 4430/ITA/MAC/DBISBEE

E.O. 12958: N/A
TAGS: ETRD EAGR ECON KIPR RP WTRO
SUBJECT: NEW FORD ENGINE PLANT TO FUEL EXPORT MARKET

SENSITIVE BUT UNCLASSIFIED – NOT FOR INTERNET DISTRIBUTION –
PROTECT ACCORDINGLY

——-
SUMMARY
——-

¶1. (SBU) Ford announced plans to invest USD 30 million in
the Philippines to build a flexible fuel engine plant during
a meeting with President Gloria Macapagal Arroyo, Trade and
Industry Secretary Peter Favila, and the Charge on December
20,. The plant will make the Philippines Ford’s third
largest investment in the region after China and India,
increasing its investment total to USD 280 million. The
plant is expected to generate USD 100 million in revenue
over the next five years. The GRP has been very supportive
of Ford and has worked with the company to create favorable
investment conditions, which influenced Ford’s decision to
expand here. End Summary.

—————————————-
NEW ENGINE PLANT TO DRIVE COMPANY GROWTH
—————————————-

¶2. (U) Ford Group Philippines plans to invest USD 30
million to build a flexible fuel engine plant at its
manufacturing facility in Santa Rosa, Laguna. An organizing
team will convene early in the first quarter of 2006 and
Ford plans for the plant to be fully operational by the end
of the year. The plant’s total annual capacity will be
between 20,000 and 21,000 engines and it will employ
approximately 90 workers. Ford expects to manufacture
100,000 engines over the next five years, which will
generate a total of USD 100 million in revenues. Eighty
percent of these engines will be exported to other ASEAN
countries and 20 percent will be for domestic consumption.

¶3. (SBU) Ford originally intended its new flexible fuel
engine plant for Thailand, but several factors influenced
its decision to invest in the Philippines. First, President
Arroyo signed an Executive Order on December 20 that reduces
the duty on imported parts and components for locally
manufactured flexible fuel vehicles (FFVs) from three
percent to zero. Second, under the Automotive Export
Program (AEP), Ford will gain a USD 400 per vehicle export
credit to buy down tariffs on imported sport utility
vehicles. During the meeting, the GRP mentioned the
possibility of extending this credit to exports of parts and
components; such credits would strategically target specific
exports. Finally, pending legislation in Congress could
establish a flat excise tax on FFVs of two percent, which
would replace the current range of tax rates that fall
between two and 60 percent, depending on vehicle value.
Although this may be problematic, President Arroyo seemed
optimistic about its prospects and said that it “should work
fine; we are working with Congress on it.”

—————————–
GRP EAGER TO ACCOMMODATE FORD
—————————–

¶4. (SBU) While the GRP is working to make the investment
climate attractive for Ford, the company still has some
reservations. The GRP is pursuing a free trade agreement
with Japan, the Japan-Philippines Economic Partnership
Agreement (JPEPA). JPEPA calls for gradual tariff
reductions to zero in 2010 on imported Japanese vehicles,
which could nullify the competitive advantage Ford gets from
exports credits under the AEP. When Ford raised the JPEPA
issue with Trade and Industry Secretary Favila, he assured
Ford that the President had instructed him to make sure that
Ford’s concerns are addressed. However, the negotiations on
an RP-Japan agreement appear to be stalled and the precise
formula for reducing tariffs on large and small-engine cars
remains unsettled.

¶5. (SBU) Another major issue for Ford is smuggling of used
vehicles, especially through Subic, under cover of used car
imports for refurbishing and re-export. These refurbished
cars, when smuggled into the domestic market, significantly
cut into Ford’s sales as well as GRP revenues. The GRP has
tried a number of measures to address this problem,
including an Executive Order that imposes a USD 9,200 duty
on each imported used vehicle and a separate Executive Order
banning used vehicle imports. Used car importers immediately
contested these orders, now in litigation. President Arroyo
told Ford that she had just given Secretary Favila
responsibility for customs at Subic and Clark economic zones
in order to prevent used cars from slipping into the
domestic market. Favila later said that it was a big
responsibility that he was committed to fulfill.

¶6. (SBU) After the meeting with President Arroyo,
Secretary Favila underscored the President’s commitment to

SIPDIS
pursuing corrupt officials involved in smuggling. Favila
said he was working to establish an “investment ombudsman”
to deal directly with issues like smuggling that affect the
investment climate.

———————————-
FORD OPERATIONS IN THE PHILIPPINES
———————————-

¶7. (U) Ford started its business in the Philippines in
1998 when it invested $200 million to build a manufacturing
facility in Santa Rosa, Laguna, which became fully
operational in September 1999. The facility occupies 21.4
hectares of land, with a plant area of 30,000 square meters.
The plant’s rated production capacity is 25,000 vehicles per
year (if working two shifts). The company began second
shift operations this year and now employs 1,253 workers.
In 2002, Ford Philippines began exporting vehicles and as of
2004, had a cumulative export total of over 24,000 units
going primarily to Thailand, Indonesia, Singapore and
Malaysia. Ford Philippines’ total export value in 2004 was
USD 150 million in completely built cars and 305 million in
parts, which exceeded Ford imports of USD 160 million.

——-
COMMENT
——-

¶8. (SBU) The GRP seems eager to accommodate Ford. As the
sole vehicle exporter in the Philippines, Ford holds a
unique position that enables the company to influence
policies favorable to its business. Ford said that the
government has been very supportive, and the meeting
strengthened the company’s overall relationship with
President Arroyo and the GRP. While certain issues persist,
particularly used vehicle smuggling, Ford has found
favorable investment conditions in the Philippines, which
has brought profits, growth, and expansion opportunities.

   

 

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